Cryptocurrency ban in India has always been shrouded with controversy after the verdict by the Reserve Bank of India (RBI) which banned the financial institutions from having any kind of relationship with any institution dealing in cryptocurrencies. But now a government panel is set up to consider a draft of regulations to give a new shape to this industry.
Cryptocurrency Ban in India
The central bank of India warned the financial institutions in April to close all cryptocurrency accounts of their associated clients in the first week of July. The major concerns of RBI were:
- Cryptocurrencies don’t have sufficient intrinsic value
- The anonymity of the transactions which gave the illicit users a platform for illegal activities
- The anonymity also was a feature which compromised with the security of the investors
The central bank explained the following reasons to Internet and Mobile Association (IAMAI), a group that includes bitcoin exchanges.
Indian Exchanges Offered Regulatory Suggestions to RBI
IAMAI which is lead by the president Subho Ray and members of leading Indian exchanges have suggested regulatory norms to the RBI and also take objection to all of the central bank’s concerns.
Some of the local exchanges also legally challenged the central bank in the Supreme Court regarding the termination of the financial institutions from rendering their services to these exchanges. The Supreme Court responded to the notice by instructing the exchanges to address the central bank directly.
One IAMAI member said the central bank, in its responses to the suggestions, said the RBI saw a need to protect banks and investors from frauds, of which there have been several.
The Exchanges Object To The Ban
The exchanges also alleged that an outright ban is not the right way to fight scams.
The CEO of Belfrics, an exchange which is based in Malaysia and is active in India commented:
Enabling more cash transactions leaves people more prone to duplicity. So limiting cryptocurrency bank transactions and enabling more of the cash transaction is not the right approach. He further added that rather than banning cryptocurrencies RBI should establish guidelines which the exchanges would follow in order to prevent frauds.
“Frauds occur wherever money is involved, including the banks.”
With regard to the RBI’s ban, the exchanges showed their concern about the anonymous transactions. They said that they follow the Know-Your-Customer (KYC) norms that prevent money laundering. Most transactions occur by means of a bank wire transfer that monitors the transactions that happen in the network.
A CEO of another exchange who requested anonymity claimed that cryptocurrencies not having an intrinsic value is not completely true. To operate certain computer programs the user can pay with Ether and as more institutions and individuals start adopting cryptocurrencies, more use cases will develop over time adding more intrinsic value.
One cryptocurrency exchange CEO complained that the central bank raised similar concerns previously but has refused to consider the recommendations.
Panel to reconsider the Cryptocurrency Ban in India
In order to explore cryptocurrency regulations, the Ministry of Finance has set a panel to work out the draft of the regulatory norms. A government official who requested for anonymity quoted:
The panel is not thinking about banning cryptocurrencies but wants to regulate them so the regulatory body would be able to trace transactions. Cryptocurrencies will be existing as commodities as it makes it easier to regulate better rather than formulating a new policy framework for the same.
Cryptocurrency is no different than the traditional stock markets where traders trade in different asset classes. Trading in the stock market is not illegal, trading in cryptocurrencies is no different, the official added.
We need to ensure that a mechanism is set which would ensure that the funds are not illegally used, and most importantly they should be able to track its source.
The panel expects to publish a draft of regulations this month, the secretary of the economic affairs department and the head of the panel, announced last month.
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